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Malaysia’s $20b Banking Merger Scrapped

A planned merger of two Malaysian finance firms that would have created the country’s biggest bank has been scrapped three months after it was announced due to concerns about the economy, Bloomberg reported on Tuesday.

The financial newswire, citing unnamed sources with knowledge of negotiations, said it was decided that the RM72.5 billion ($20.3 billion) union of CIMB Group and RHB Capital was now too risky.

Concerns about the economic outlook are mounting in Malaysia, with falling oil prices expected to slash the petroleum-exporting country’s trade revenue and the ringgit currency at five-year lows.

The World Bank recently trimmed its economic growth forecast for Malaysia to 4.7 percent for 2015, citing export weakness, the oil price plunge, and subdued prices for other key Malaysian exports such as palm oil.

Ratings agency Fitch had warned last year when news of the impending deal first emerged that it was fraught with risk, particularly difficulties achieving integration. The merger also was to include the Malaysian Building Society, a property lender.

The deal “is better off than on,” Geoffrey Ng, a Kuala Lumpur-based adviser for strategic investments at Fortress Capital Asset Management Sdn, was quoted by Bloomberg as saying.

“The overlaps in terms of operation and market coverage would have been too much. The redundancy that would have occurred would have been quite painful.”

The three institutions had proclaimed in October that they would create a “financial powerhouse” and a “mega-Islamic bank”. It was to be the country’s largest bank, surpassing current leader Maybank, and Southeast Asia’s fourth-biggest, they said.

Islamic banking fuses principles of Islamic sharia law and modern banking methods. Islamic funds are banned from investing in companies associated with tobacco or gambling. Interest on accounts is also banned as usury.

Malaysian authorities have sought to position the country as a leading centre for Islamic finance and also have encouraged consolidation in Malaysia’s banking sector to heighten its regional profile and competitiveness.